Fund Strategies and Market Commentaries
October 15, 2013
Employing a moderate amount of leverage, Midas Magic is concentrated in certain quality companies with growth and/or value characteristics in a focused portfolio. The Fund’s leveraged investment positioning has led to recent market outperformance, with significant contributions from financial services companies, such as Cerner Corporation, MasterCard Incorporated, and Franklin Resources Inc., while the Fund’s holding of Exxon underperformed. Although the Fund’s portfolio companies are almost all U.S. based, they have typically global operations in cyclical and economically sensitive sectors such as financial services and technology. Currently, the overall portfolio profile reflects companies with less current dividend yield but more potential growth, with higher than average returns on assets and equity. MasterCard Incorporated, Berkshire Hathaway Inc., Google, Inc., Costco Wholesale, and JP Morgan Chase are among the top five portfolio holdings.
Midas Fund continues to emphasize mining companies which offer reasonable valuations and robust production of gold, silver, and other metals. In the third quarter, the Fund added to its portfolio, increasing leverage, a number of attractively priced precious metals mining companies with strong operations in countries deemed less politically risky. As anticipated, the Fund benefited by a recovery in metals prices in the seasonally favored third quarter. Due to current developments in Washington, DC, however, the Fund has subsequently made several sales of other, less attractive portfolio companies. The sales included both a large gold producer and a smaller silver producer, but in each case the company appeared to be suffering from a deteriorating operating environment, potentially leading to reduced ore production or profit margins. Other sales were made of shares of companies whose operations appeared to require a good deal of additional financing, potentially likely to result in dilutive equity offerings. The Fund is currently invested in a global portfolio of primarily large and medium mining companies with promising exploration potential, expanding production profiles, increasing cash flow, and/or other special growth features.
Midas Perpetual Portfolio’s strategy is to allocate its portfolio to gold, silver, Swiss franc assets, hard asset securities, and large capitalization growth stocks in pursuit of its investment objective of seeking to preserve and increase the purchasing power value of its shares over the long term. Recent returns for the Fund have been relatively muted as prices for precious metals retraced gains made in the third quarter. In contrast, the Fund has seen real strength in shares of the foreign banks held pursuant to the Fund’s allocation to large capitalization growth stocks and mining company shares in its allocation to hard asset securities. In the current quarter, the Fund is decreasing its use of investment leverage, positioning the Fund more defensively, by reducing its allocations to Swiss franc assets and hard asset securities.